The aggregate funded status of S&P 1500 companies' pension plans dropped two percentage points in April as the discount rate dipped toward historic lows, according to Mercer's monthly funded status report.
Equity markets rose 1.93% for the month, but the funded status decreased to 80% from 82%. The discount rate fell 21 basis points to 3.65%, approaching the record low of 3.48% last July. The aggregate pension deficit increased by $47 billion last month to $419 billion.
“April was kind of a funny month. Equity markets were quite volatile, but finished positive,” said Jonathan Barry, a partner in Mercer's retirement business, in a telephone interview. “The Fed is showing indications of keeping rates low … but I can't say for sure why rates were down another 20 basis points.”
April also broke a streak of six consecutive months of funded status improvements. However, the funding ratio has improved this year overall from 74% at the end of 2012.
Continued volatility in markets is increasing interest in derisking pension plans, Mr. Barry said. In the past six months, many Mercer clients have hit triggers in their glidepath strategies, Mr. Barry added.
The Mercer U.S. Pension Buyout Index, which monitors the cost of annuitizing liabilities with an insurer, shows plans would pay a 10% premium of transferring liabilities to an insurer at the end of March. That compares to an estimated 9% cost plans already have to maintain the liabilities, such as PBGC premiums, administration costs and investment management fees.
Estimated aggregate assets of the S&P 1500 plans were $1.71 trillion as of April 30, up 1.8% from the end of March. Estimated aggregate liabilities were $2.13 trillion, up 3.9%, according to Mercer.